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Profile: Robert Bennett, Northern Rock FD

As financial director of one of the UK's most cost-efficient mortgage lenders, Robert Bennett is determined to stay true to the building society's northeast roots. As Michelle Perry discovers, the tough-talking Yorkshireman has recently made his stage debut.

Northern Rock’s finance director Rob Bennett has ‘no ambitions to go to Bangalore’. Or China, for that matter. And we are not talking holidays here. His promise, a rather grand one in the face of the apparent flood of IT and call-centre outsourcing to Asia, could be hard to keep.

This is especially true as six weeks ago, Lloyds TSB became the latest British employer in a long line to succumb to the attractions of outsourcing.

The bank said it would close a call centre in Newcastle and ship 750 jobs to Bangalore, southern India’s answer to Silicon Valley.

The trend is becoming more and more pronounced in financial services companies, particularly with banks. Banks’ physical assets are few and there are huge potential cost savings that can be made by moving overseas where the wage bill is around a sixth of what employees earn in the UK.

HSBC has already gone down this route and both Barclays and Abbey have indicated they may too embrace the trend.

But the straight-talking FD assures that Northern Rock is set, for the immediate future, to retain all its staff in the northeast.

Bennett says: ‘Whenever we keep improving efficiency on the overall business, which is what we’re doing, then we don’t really see the point in moving offshore. And you know it’s India today, but in five years time it’ll be China, and then it could be Thailand or elsewhere.’

Wisely he is careful not to rule out the possibility in the long term of moving overseas. But he says the Newcastle-based FTSE100 bank will always look at its base in the northeast to improve efficiency before moving elsewhere.

And, despite the obvious cost savings, Bennett does not believe that the same service quality can be offered to customers.

‘Control in a bank environment – control, regulation and customer service – is something you need to keep a very, very close eye on. And it’s very difficult for somebody in India to give people advice on mortgages in the UK when they’re not familiar with them,’ he says.

And here we move on to another of his favourite rants, the housing market.

He absolutely refutes any suggestion that the UK housing market is heading for a crash. In fact, he argues there isn’t even a single UK housing market, but rather a number of geographic areas.

‘All are different and you have to be careful that you see them differently. Of course, there’ll be pockets of the UK where house prices don’t do so well. But equally there’ll be pockets in the UK where the housing market does extremely well – in and around Newcastle, for example,’ says Bennett.

And another thing. ‘I think what you’ve got to accept is that the whole of the western world has moved into a low inflation, low interest rate environment. And that has meant that mortgages are more affordable for most people. Whereas it used to take a third of your income. It now takes about a fifth or sixth. Which means that people are prepared to put more into housing,’ says Bennett.

That said, he agrees that the market is definitely about to slow down.

But he doesn’t foresee a dramatic impact on the average UK borrower, and, therefore, nor on Northern Rock’s ability to sell mortgages.

Bennett, a down-to-earth Yorkshireman, has little time for those peddling worst-case scenarios, such as the housing bubble bursting and consumer debt escalating out of control. Although true to the stereotypical traits of a Yorkshireman, his passion for the industry is abundantly clear.

He is playfully dismissive of those ‘headline-grabbing news stories’, but he is wise to the power of the media, spending on average a third of his day talking to the outside world. And he has this disconcerting knack of answering a question with a question.

Of the recent corporate governance changes, he remains dubious. ‘My question is whether tightening corporate governance regulations prevents people like Maxwell. If you have an individual who’s too powerful in an organisation, that is bad for corporate governance. I’m not sure how the rules we’ve got at the moment prevent powerful people. You can have as many rules as you want but if there is someone too powerful at the top they can use their power to circumvent the rules,’ he says.

Bennett also believes that many of the changes could be divisive among executive and non-executive directors, which is something he says will benefit neither companies nor shareholders.

Northern Rock has recently come in for some heavy criticism for closing down 20 smaller local branches. But, says Bennett, the decision reflected changes in the way customers were handling their finances and the company’s own drive for growth.

‘We’ve plans to grow this company in the northeast, we’ve already done it, and we want to continue to do that. Unfortunately the good of most people can sometimes be at the expense of the odd individual. And closing branches is never convenient for every individual, however it’s for the good of a vast majority of our customers,’ he explains.

‘The more efficient we are the better rates customers get, the better mortgage rate they pay. And surely that’s better than keeping a convenience branch open, that everybody says is useful. And all the evidence we have is that it’s not utilised in a way that makes it financially viable for us.’

And with the average annual cost of £0.5m to keep a branch open, and more customers content to deal with their finances online or via telephone, it makes business sense.

Northern Rock has come a long way since it was founded in Newcastle in the 1850s. Its branches can be found throughout the British Isles and its reputation precedes it as one of the most cost-efficient UK mortgage lenders.

It is currently the ninth largest UK-quoted bank by market capitalisation and the largest financial institution base in the northeast.

Much of the growth has been achieved in the last 10 years – roughly the same time as chartered accountant Bennett has been with the company. In 1993, the company was a fifth of the size it is today. Even in 1997, after it floated, it sat way down the FTSE350. Now at number 70 in the FTSE100 it enjoys a prime position within UK plc.

But it has no intention of languishing at the bottom of the FTSE100.

The plan is to increase by 20% compound, which the company has done for the last 12 years.

‘We’re also going to grow our profits by 15% compound and (generate) return on equity for shareholders of over 20%,’ says Bennett.

It is a tall order. One non-executive director, who sits on some of the most respected boards of UK and US companies, says: ‘Average growth rate is at around 10%. If you achieve double digit growth you’re doing well. It’s good going to get 11%. But to sustain 20% compound growth, well it is possible but you’ll have to come up with some pretty clever innovation.’

Bennett is under no illusions, however, of how ambitious these forecasts are. ‘It does mean the job gets more difficult the bigger we get. Success is harder to maintain. It’s easy to get to where you’re going, to stay there is more difficult,’ he admits.

But he does have ambitions.As he sits in the company’s plush new offices he maps out their future expansion plans: ‘4,500 people at two sites.

We’ll have doubled our size. We’re proud of being one of two FTSE100 stocks based completely in the northeast,’ he says, extending his arm toward the window where a building site is taking shape in the form of yet more Northern Rock offices.

The bank is making a £30m investment in its Gosforth headquarters, which could create up to 1,400 jobs over the next five years.

Its interim results issued on 17 July this year offer evidence of continued strong growth. Pre-tax profits were up by 22% to £186.2m with total income up by 21.7% to £319.5m.

And despite resisting the pull of Asia for outsourcing purposes, the company has no intention of eschewing potential investors in the Far East.

‘In 1997 we only had UK-based shareholders,’ Bennett says. ‘Now we’ve got substantial shareholders in America, Europe and Scandinavia. And next year we’ve got a roadshow out in the Far East to try and encourage the Chinese and Japanese to be equity shareholders.’

No resting on his laurels for Bennett. Always on the look out for new opportunities to improve the business, it appears to be a trait that surfaces in his personal life too.

One of the hobbies that Bennett has recently taken up – amateur dramatics – belies his stereotypical roots as a hardy Yorkshireman. Yes, Northern Rock’s group finance director has taken to acting.

In fact his acting debut, alongside his wife in a local play, was such that Bennett suffered several sleepless nights before the big production.

An affliction he is not even used to ahead of facing the baying dogs in the City.

Perhaps that’s why he’s taken up the performing arts to improve delivery of annual reports and interims. Not that it’s needed, after 38 years in the business and a desire to move with the times, he understands the importance of communication and strategy.

He is a man who has clearly always played to his strengths. And from a very early age, too. Aged eight or nine, he had already decided he wanted to do something connected with numeracy. Foresight is another of his strong points. This will stand him in good stead for 2004 when he must grapple with the switch to international accounting standards. Although he is confident Northern Rock is as ready as it can be, he is frustrated that the new rules remain a moving target.

Bennett’s next performance will take place on 28 January when the company announces its preliminary results.

He is unlikely to suffer any sleepless nights ahead of that date. But do expect that his audience will be questioned as much as they probe him.

SOCIAL RESPONSIBILITY

Northern Rock takes its corporate social responsibility seriously. The Northern Rock Foundation was established under the terms of Northern Rock’s conversion from a building society to a plc in 1997. The foundation receives approximately 5% of the annual consolidated profit before tax of Northern Rock plc to support charitable causes mainly, but not exclusively, in the northeast of England.

The primary objective of the foundation is to help improve the conditions of those disadvantaged in society.

It supports causes in Cumbria, Northumberland, Tyne and Wear, Durham and Teesside.

A project working with young people excluded from school, organisations offering affordable finance and a major northeast community festival are among schemes set to benefit from grants worth £2,293,438.

A total of 40 organisations across the north-east and Cumbria will receive grants to support successful and creative ways of addressing social and economic problems and improving quality of life. The latest projects bring to £11,941,811 the total grants made by the foundation in 2003. Awards in this round include:

£223,067 shared between three Tyne and Wear credit unions (Northern Oak in North Tyneside – £98,500, Wearside First in Sunderland – £95,242 and Newcastle City – £29,325) to enable them to provide financial services for people on low incomes, helping them avoid debt and loan sharks;

£59,946 to the Get Ahead Project in Blyth to help young people who leave school with no qualifications and who may become involved in anti-social behaviour;

£46,777 to Newcastle Community Green Festival to support the expansion of the festival and help increase visitor numbers;

£67,000 for the Cumbria Association of Councils for Voluntary Service to provide training to help staff and volunteers from community groups; and

£98,947 to Eden Mind in Cumbria and £75,600 to Mind in Gateshead to support their work with people with mental health problems.

The chair of the Northern Rock Foundation’s trustees, Richard Harbottle, says: ‘The trustees are delighted to be able to support such a wide range of projects tackling disadvantage and improving the quality of people’s lives across the northeast and Cumbria.’